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OSU Extension BEEF Team

BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor

Previous issues of the BEEF Cattle letter

Issue # 368

December 3, 2003



February Prices Too High? July Too Low? - Brian Roe, OSU Extension Livestock Economist

Demand and supply - these are the fundamental factors driving the fall's incredible cattle markets. Understanding the dynamics of each is crucial for understanding where this market is headed over the next year. Today I'll discuss a couple arguments on each side of this timeless economic puzzle as it applies to next year's cattle prices.

The first is a supply side issue related to recent data from USDA's cattle on feed report. Looking at the pattern of placements of cattle on feed by the weight group allows one to develop crude projections of monthly marketings of cattle from feedlots during the next three months. Several such models are suggesting that large placements of heavier cattle during the late summer/early fall coupled with large placements of lighter cattle during the summer might coupled with good weather coupled with lighter marketing weights all spell a spurt of marketing during January and February.

Some models suggest 5 to 8% more cattle being moved from US feedlots to slaughter during these two months than during 2002. When one considers several compensating factors (e.g., slaughter weights will be lighter and Canadian cattle will probably not be in the US slaughter mix at that time), these calculations still suggest US production running slightly higher than last year. There are plenty of demand-side factors that may make this a moot point (as I'll discuss below), but the key thing is that USDA's latest projections call for about 2% year-over-year reduction in US beef production during the first quarter of 2004, while the calculations above suggest that an increase is possible instead. Hence, if USDA revises this figure (which is possible on Dec. 12) or the market starts to discount this figure, we may see some slippage in the February 2004 futures price, which some of you may be using to lock in winter prices.

The flip side of this possible clumping of marketings in early winter is that beef supply for later in the year may be lighter than expected. As a country, the US has already burned through (i.e., placed on feed) much of the available supply of feeder cattle. As of October 1 of 2003 we had about 800,000 (2.5%) fewer feeder cattle available than in October of 2002, and with continued aggressive placements during October, this figure is even smaller. Even as Canada opens up its border, the supply of feeder cattle will increase only marginally, as the Canadian herd is only 1/6 the size of the US herd. In short, this all points to the possibility of another incredible year of calf prices during the fall of 2004.

The key issue that will either compliment or offset these supply side developments is how consumers will react to skyrocketing beef prices over the next few weeks. With Thanksgiving behind us and thoughts turning away from our endless turkey leftovers, a hungry consumer will turn to the meat case and may be repelled by increased beef prices (my normal package of hamburger broke the $4 mark for the first time in a long time). While cattle prices began rising during the summer, retailers were hesitant to increase prices in the store and only began to due so in earnest during October and November, with retail prices now about 20% higher than before.

In December, however, these prices might ratchet up another 10 to 20% to compensate for cattle prices that are now 50% higher than year previous. If consumers don't miss a beat, and keep on buying beef, this market could be vastly undervalued and we might see 2004 futures prices add $5 across all maturities. If consumers switch to the much cheaper pork and chicken offerings, and make some of these switches part of their supermarket routine for the upcoming year, the futures market is probably priced about right. In my opinion, I think that we'll see slightly tighter supplies in summer and fall and fewer consumers than most imagine that will shrink from higher beef prices. In short, I think July on out is priced too low right now and that February might be a little high.

EDITOR's NOTE: Readers may visit Roe's website under this link





These OBT Bulls "Healthiest Group"

According to Ohio Bull Test herdsman Kevin Stottsberry and EORDC manager Wayne Shriver, so far this set of bulls has been the healthiest group they've seen. Last week marked the official beginning of the performance test for the one hundred one bulls that were received from 31 consignors at EORDC on October 28 for the 2003-2004 Ohio Bull Test. They include 3 Charolais, 4 Red Angus, 1 Maine-Anjou, 4 Gelbvieh, 5 Polled Hereford, 8 Simmental and 76 Angus.

The current data report on the bulls may be found at the OBT website (http://bulltest.osu.edu) or may be received by contacting Justin Lahmers (614.873.6736). The report lists the two weights at the beginning of the test, and their average for the official start weight. Weight per Day of Age is abbreviated WDA. The Ohio Bull Test begins with an average weight of the first two days on test (November 25 & 26) to create the official start weight. Likewise, the last two days on test are averaged together to create the official end weight. This procedure is in accordance with the Beef Improvement Federation guidelines and is done to minimize fill effects.

New this year at OBT is the use of a bunk line feeding system (see photo on OBT website). As a result, the Ohio Bull Test is accepting bids for the five self feeders that have been removed from the bull barn with the completion of the recent renovations. They are Smidley Super 7 Steer Stuffers with extensions made by Marting Manufacturing and hold approximately 4 tons of feed each. They are 4 years old and in excellent condition. Bids may be phoned, faxed, emailed, or delivered to the OCA office by December 8. Bids should be based on a per feeder basis and indicate the number you would like.

Visitors are always welcome at the Bull Test and especially on weight days. The 28-day weights will be collected on Tuesday, December 23. The process generally starts around 9:00 a.m.. Feel free to come and bring a car load of cattlemen. Should you have questions regarding Ohio Bull Test or the April 17 sale that will conclude it, contact Justin Lahmers at the OCA office (614-873-6736 or jlahmers@ohiobeef.org).





Meetings!

'Tis the season for meetings, and cattlemen have literally dozens to pick from this winter. In addition to the 2004 Cow/Calf Management and Technology Schools that we've mentioned in recent weeks, a feedlot management school has recently been added to the rapidly growing list of opportunities. This 4th edition of Francis Fluharty's widely acclaimed 'Ohio Feedlot Management School' will be hosted in Washington County. Contact Eric Barrett (barrett.90@osu.edu or 740.376.7431) for reservations and details.

In addition to the Cow/Calf and Feedlot series', there are a variety of grazing and forage management meetings, corral and handling facility design sessions, nutrition, cow herd record keeping, and reproduction meetings scheduled for this winter - and, the list grows nearly every day. Plus, the Ohio Cattlemen's Association will also be hosting three District meetings in January. For a complete listing of beef cattle related meetings, visit the OSU Beef Team web calendar (http://beef.osu.edu/calendar) or contact your local OSU Extension agent.





Use Lazy L to Make Inventory Reductions - Kris Ringwall, Extension Beef Specialist, NDSU Extension Service

Reality sometimes slaps us in the face and we must step back and reassess what is happening. For livestock producers, continued drought, feed shortages and increased feed cost must be played against the perpetual card of optimism. There are real limits to the hand we're dealt and one of those limiting cards is mother nature.

Another major card is capital--just how much money a particular producer has to risk. Given those odds, there is little wonder why the wrinkles run long and deep in many a rancher's brow. Given those cards, the North Dakota State University Dickinson Research Extension Center is currently reducing cattle numbers to better plan for the future.

One common thread among many financial failures is the failure to act at the proper time. (I can see this "BeefTalk" could spiral down to the pit of depression quickly, but that is not the point I want to make.) We are all faced with challenges throughout our lives, and generally doing nothing creates nothing.

Ranching and farming are like driving fast cars. Sometimes the road curves a little more than you want or the road conditions are not what you want. In either case, adjustments in speed and direction need to be made to survive. As the road narrows, the heart rate may go up, but careful planning and preparation will bring out the survival instinct and you can steer your way through. However, if you wait too long to make the needed adjustments, your car will surely spin out of control with possible tragic results.

Adjusting inventory is one option open to cattle producers. Keying in on bred cow sales or timing cull markets can certainly produce cash, cut costs and hopefully bank dollars for a future day or reduce debt. Inventory reductions can actually be beneficial, particularly if a focus is maintained on the core cow herd.

I have often suggested to producers that utilize the Cow Herd Appraisal and Performance Software (CHAPS) program to implement the lazy L principle. This is a lot easier for those producers who already have a calving distribution table, but if you don't, here is how to draw one up.

Take a sheet of paper and make five columns listing dates when cows calved across the top: first 21 days, second 21 days, third 21 days, fourth 21 days and late. Now make a row for each age of cow you have in the herd. When you get done, you will have made a table with all your cow ages down the left hand side and calving cycle across the top.

To complete the table, go to your calving book and mark down each cow in the appropriate box in the table. For example: cow H8220 is a four-year-old that calved 30 days into the calving season. Place a mark in the three-year-old row and second 21 days column; cow G7108 is a five-year-old that calved 15 days into the calving season and would get marked in the four-year-old row and first 21 days column.

After going through all the cows, you will have a table that shows the distribution of your calving season by cow age. Now depending on how many cows you need to cull, draw a lazy L and sell everything below and to the right of the lazy L. For example, the Dickinson Research Extension Center drew a line between the 9- and 10-year-old cows and a line between the third 21 days and the fourth 21 days to create our lazy L. We sold everything below and to the right of that lazy L.

What this does is identify the older cows as well as those cows that are not calving on time. Many of these cows will work just fine for someone else, and will clean up and fine tune your own operation. When you get done with the lazy L, don't forget to throw in a couple of wild, poor-mothering or poor-milking cows, as now is your chance to be rid of them.

Good luck, and chin up. May you find all your ear tags.





Weekly Purcell Agricultural Commodity Market Report for December 2, 2003
Wayne D. Purcell, Agricultural and Applied Economics, Virginia Tech
http://www.ext.vt.edu/news/periodicals/purcell/

Cash cattle prices in early week trade were as high as $104.50 in Nebraska with very limited numbers to date. The box beef values, after having dipped significantly off the all-time highs, started to show positive daily changes on Monday and again on Tuesday morning with the heavier Choice boxes above $161. Margins at the packing plant are still iffy and in trouble. There is growing talk about packing plants cutting back on slaughter levels. There is also increased recognition that the processes I have discussed in prior letters are going forward with pork offering stable prices and ample supplies and good margins to the retailer and beef getting by-passed as these higher prices work themselves up the chain to the retail food stores and to the restaurants and other institutions. Monday's high on the December live cattle contract was $99.70, taking out the high for earlier December of $99.30. I would continue to recommend short positions in this market and in the contracts through April. I think there is definitely some downside risk here as the packers back off in operating levels, and we see other types of forced adjustments to make the cash and futures come together in these near term contracts.

Any long hedges established on the substantial dip to the downside in the March feeder cattle have worked across the past several days with trading above $94 in Tuesday's session. That is already $6 above the substantial amount of trading at the $89 area that occurred during November. If this March contract can challenge its contract high of $97.45 on October 14, I would take profits on long hedges and turn to being a seller and place short hedges in the spring feeder cattle contracts.





Visit the OSU Beef Team calendar of meetings and upcoming events



BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.

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